Can Mideast learn from Eastern Europe's post-communist transition
Saturday, 8 December 2007
Antonio Maria Costa
Eastern Europe is a long way from the Middle East, but there is a lesson to be learnt from its post-communist transition. One of the strongest incentives has been economic growth and prosperity: good business has led to democratic governance and good relations.
Eastern Europe and the former Soviet Union were in ruins as communism collapsed. How were reconstruction and development encouraged? With a lot of political and financial capital. That is what the European Union did in 1989 in the week that the Berlin Wall came down. Experts immediately began planning the creation of a European Bank for Reconstruction and Development, which opened a year later in London. It was the right move, at the right time, for the right purpose.
As the EU negotiator at that time and, later, as secretary-general of the bank, I recall the sense of urgency and purpose when the first meetings about the EBRD took place in Paris. Participants wanted to impart a strong message to those who had freed themselves from communism that the international community was backing their historic political change with money.
The bank was endowed with capital of 10 billion, later doubled. Despite a difficult business environment in the region at the time, it performed well. It promoted economic development and leveraged its resources to stimulate both democratisation and privatisation. It created jobs and export markets.
Over time, good corporate management and competent staff have generated a rich balance sheet and a wealth of accumulated revenue. Indeed, the bank has an embarrassment of riches. At the annual meeting in Kazan, Russia, in May, the main discussion centred on what to do with the bank's massive profits: should they be invested, returned to shareholders, or added to reserves? Many private banks today would relish such dilemmas.
I have another idea: privatise the EBRD. With the resources that member states -- the bank's shareholders -- would derive from its sale, establish a similar bank for the reconstruction and development of the Middle East: same concept, comparable mission statement, similar top-quality senior management and staff.
At a time when the budgets of developed countries are under stress, this is a cost-free way of injecting politically protected capital into a region badly in need of reconstruction and development. Everyone wins, even London, which would retain a privatised EBRD.
There are several reasons to support this proposal.
First, it would be a rare case of a multilateral institution dissolving itself after having fulfilled its mandate. I remember well how in 1989 we discussed how to make the EBRD mandate time-bound, with a sunset clause and an exit strategy. That time has come. This would also be a useful precedent for a few multilateral relics that tick over with little purpose beyond feeding their bureaucrats.
Second, the Middle East badly needs jobs, reconstruction and development to support political processes -- and vice versa. The region is capital rich, but the wealth is unevenly distributed: think of the oil-rich Gulf states compared to the misery of the Palestinians or the refugees from regional conflicts. It is necessary to share such capital.
Third, private investors in the Middle East would welcome partnership with a multilateral public bank that provides a political umbrella and cushions risk.
A few low-income countries in the EBRD region still need help: Moldova, Belarus, the Caucasus, Tajikistan and Kyrgyzstan. These countries should be assisted for longer, but not by a multilateral institution with 1,300 staff and tens of billions of euros in capital.
There will be plenty of questions, such as the area of operations for such a Middle Eastern bank. This can be worked out. Whatever the geographic scope, it should not be just another regional development bank. This should be a bank with a mission. For this reason, the location of the bank should be significant. Since this is an institution created to help resolve a political problem, why not go to the symbolic heart of the dispute and build it in the West Bank?
An EBRD-style bank alone will not bring peace to the Middle East. However, it would promote some of the mutual interests that could bring badly needed political and economic investment to the Middle East in order to promote peace, democracy, development and stability. It is worth a try.
(The writer is a former secretary-general of the EBRD)
Eastern Europe is a long way from the Middle East, but there is a lesson to be learnt from its post-communist transition. One of the strongest incentives has been economic growth and prosperity: good business has led to democratic governance and good relations.
Eastern Europe and the former Soviet Union were in ruins as communism collapsed. How were reconstruction and development encouraged? With a lot of political and financial capital. That is what the European Union did in 1989 in the week that the Berlin Wall came down. Experts immediately began planning the creation of a European Bank for Reconstruction and Development, which opened a year later in London. It was the right move, at the right time, for the right purpose.
As the EU negotiator at that time and, later, as secretary-general of the bank, I recall the sense of urgency and purpose when the first meetings about the EBRD took place in Paris. Participants wanted to impart a strong message to those who had freed themselves from communism that the international community was backing their historic political change with money.
The bank was endowed with capital of 10 billion, later doubled. Despite a difficult business environment in the region at the time, it performed well. It promoted economic development and leveraged its resources to stimulate both democratisation and privatisation. It created jobs and export markets.
Over time, good corporate management and competent staff have generated a rich balance sheet and a wealth of accumulated revenue. Indeed, the bank has an embarrassment of riches. At the annual meeting in Kazan, Russia, in May, the main discussion centred on what to do with the bank's massive profits: should they be invested, returned to shareholders, or added to reserves? Many private banks today would relish such dilemmas.
I have another idea: privatise the EBRD. With the resources that member states -- the bank's shareholders -- would derive from its sale, establish a similar bank for the reconstruction and development of the Middle East: same concept, comparable mission statement, similar top-quality senior management and staff.
At a time when the budgets of developed countries are under stress, this is a cost-free way of injecting politically protected capital into a region badly in need of reconstruction and development. Everyone wins, even London, which would retain a privatised EBRD.
There are several reasons to support this proposal.
First, it would be a rare case of a multilateral institution dissolving itself after having fulfilled its mandate. I remember well how in 1989 we discussed how to make the EBRD mandate time-bound, with a sunset clause and an exit strategy. That time has come. This would also be a useful precedent for a few multilateral relics that tick over with little purpose beyond feeding their bureaucrats.
Second, the Middle East badly needs jobs, reconstruction and development to support political processes -- and vice versa. The region is capital rich, but the wealth is unevenly distributed: think of the oil-rich Gulf states compared to the misery of the Palestinians or the refugees from regional conflicts. It is necessary to share such capital.
Third, private investors in the Middle East would welcome partnership with a multilateral public bank that provides a political umbrella and cushions risk.
A few low-income countries in the EBRD region still need help: Moldova, Belarus, the Caucasus, Tajikistan and Kyrgyzstan. These countries should be assisted for longer, but not by a multilateral institution with 1,300 staff and tens of billions of euros in capital.
There will be plenty of questions, such as the area of operations for such a Middle Eastern bank. This can be worked out. Whatever the geographic scope, it should not be just another regional development bank. This should be a bank with a mission. For this reason, the location of the bank should be significant. Since this is an institution created to help resolve a political problem, why not go to the symbolic heart of the dispute and build it in the West Bank?
An EBRD-style bank alone will not bring peace to the Middle East. However, it would promote some of the mutual interests that could bring badly needed political and economic investment to the Middle East in order to promote peace, democracy, development and stability. It is worth a try.
(The writer is a former secretary-general of the EBRD)